We are continuing with common mistakes traders make during a Platform Market Condition.
FTNT is a stock that is platforming as it moves up. These are very common patterns right now as many stocks hit new highs, all time highs, and steep angles of ascent that needs to pattern out.
As long as money flows into the markets from other financial instruments, a major correction is not likely. You may see extreme patterns on charts or indexes but if you assume that means a major correction, you will get whacked on a sell short as so many traders did in February.
Flow of funds is INTO stocks right now, so instead of major corrections we will see PLATFORMS.
A platform is a type of sideways action. The markets move sideways 70% of more of the time. Do not assume the indexes will tell you what price action is prevalent. They are a derivative of price formulated and weighted so the indexes do not expose common stock action.
FTNT is a great example of a platform and the kind of action within the platform that gives many short term traders grief. Common mistakes made with this kind of price action are:
1. Trying to trade the tight sideways action when there is insufficient gains on the smaller runs within the sideways pattern.
2. Keeping stops too tight on the sideways pattern.
3. Moving up trailing profit stops before the platform has completed.
During a platform the stock will be up and down almost daily. So studying the chart closely you can see that attempting to swing trade will result in chronic whipsaws. MACD is not the indicator to use for this type of price action. Switch to platform market condition indicators that will expose the energy before a big gain or big gap.
Chart 1
The chart above shows very small runs that whipsaw constantly. This is the platform. Below I have drawn a rectangle around the platforms. This makes it easier for you to see the platforms. This is a position style trade and not ideal for swing trading.
Chart 2Notice how price doesn’t have a strong steady several day gain but goes up and down and down and up during the platform.
Also notice that the platform is getting slightly wider in point range as it moves up but not enough for really great run gain potential and risk to reward ratios.
If you are a swing trader you MUST consider the run gain potential first. How many points are left in the run? If there is only one point left, this is not enough for good swing style trade gain.
The average swing trader should be striving for 3-10 points of gain per run. If you are attempting to make profits consistently with one point or less then you will have chronic losses.
This is a very common problem for many swing traders. They do not recognize the platform and they attempt to trade it. Instead, you need to look for stocks that are going to move 3-10 points quickly. These are the runs swing traders need to be consistently profitable.
Trade wisely,
Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner
(c)2011 Decisions Unlimited, Inc.
Disclaimer: All statements, whether expressed verbally or in writing are the opinions of TechniTrader, its instructors and or employees, and are not to be construed as anything more than an opinion. Student/subscribers are responsible for making their own choices and decisions regarding all purchases or sales of stocks or issues. At no time is any stock or issue on any list written or sent to a student/subscriber by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or an investment advisor it is strictly an educational service.
